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Mann_BLRB 9_TB_Ch44

Business Law and the Regulation of Business

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Chapter 44—Accountants' Legal Liability TRUE/FALSE 1. Mary tells her accountant, "I must have this year's audit completed by March 1." The accountant agrees to complete the audit by March 1. Under general contract law, if the audit is not completed by March 1, Mary does not have to pay the accountant for the audit. ANS: T TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 2. An accountant who substantially performs his contractual duties is generally entitled to be com- pensated for the contractually agreed-upon fee, less any damages caused to the client. ANS: T TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 3. Criminal sanctions for accountants are limited to punitive fines. ANS: F TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 4. An accountant may not disclose the contents of his working papers under any circumstances. ANS: F TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 5. An accountant-client privilege is statutorily recognized in all states, permitting the accountant to refuse to disclose confidential information gleaned from his client. ANS: F TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 6. Accountants are subject to civil liability under the 1933 Act if the financial statements they prepare or certify for inclusion in a registration statement contain any untrue statement or omit any material fact, but only if reliance on the financial statements is proven. ANS: F TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 7. Under the 1934 Act, an accountant's liability for false or misleading statements is based on a good faith negligence standard. ANS: T TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 8. An accountant is negligent if she does not exercise the degree of care a reasonably competent account- ant would exercise under the circumstances. ANS: T TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic
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9. The common law recognizes an accountant-client privilege. ANS: F TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 10. Neither the common law nor federal law recognizes an accountant-client privilege. ANS: T TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 11. An accountant is subject to potential civil liability arising from the professional services he provides to his clients and third parties. ANS: T TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 12. To lessen his tax liability, a client asks his accountant to misstate information on his tax return. If the accountant does so, she may be subject to fines and up to three years in prison. ANS: T TOP: AICPA BB-Legal | AICPA FN-Risk Analysis MSC: AACSB Analytic 13. Historically, an accountant's liability for negligence extended to the client and third party beneficiaries.
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